China’s Corn Strategy Turns Bear Market on Its Ear

July 21, 2015 at 1:28 pm

A massive rise in corn imports last month is bringing back into the spotlight China’s hunger for the yellow grain and showcasing how Chinese policy-makers successfully overhauled the country’s food supply routes to lessen its dependence on the U.S.

Corn imports in June were up nearly 30-fold from a year ago to 872,919 metric tons, according to the latest customs data. In the first half this year, China imported 2.65 million tons, almost double the volume this time last year.

If it sustains this pace of buying, Beijing is on track to post for the full year its biggest annual corn import ever.

For a time, around 2010, it looked as if China was already poised to become the world’s biggest importer of corn. Annual imports were rising by quadruple digits. China’s middle-class were eager for all the protein from animals that were fed corn and its by-products. By 2012, China went from being a nobody in the corn-importing world to the sixth-biggest buyer on the planet.

Then it slipped to 13th place as imports tumbled. Why?

Part of the reason was strategic worries. The U.S., the world’s biggest corn exporter, was supplying a massive amount of China’s corn. That high level of dependence produced consternation in Chinese policy circles that China was losing its ability to harvest for itself what it needs to eat.

Gradually, recognition took root in agricultural policy offices that this alone wasn’t a good reason to turn the nation’s back on imports altogether – China had to learn to embrace global markets, since its massive population meant it could never entirely depend on itself, officials said.

It didn’t help that quarrels with U.S. suppliers during the period broke out over shipments of genetically modified U.S. corn that China hadn’t approved.

But now, China’s corn imports are up again. Why? Prices are down just 6.7% since the end of last year, not quite enough to justify such a big jump in purchases. Amid a big commodity rout this week, global corn prices have held up.

A review of China’s customs data indicates a more plausible cause. The bulk of the massive increase in China’s imports came not from the U.S., but from Ukraine. Imports from the eastern European country in the first half this year were up 852%, or about eight-fold, from a year ago. Ukraine accounted for 88% of China’s corn imports in the period.

Other big corn exporters to China now include countries that had never before played that role in a big way: Russia, Bulgaria, Myanmar, Laos. Most of these countries are neighbors of the Middle Kingdom; a closer agricultural embrace plays well for Beijing’s regional diplomacy, too.

This is deliberate policy, cultivated over years. China has signed deals with Ukraine, Russia and Brazil, among others, to ensure it draws from a wide base of suppliers.

How big is the U.S. share now? Five years ago, the U.S. supplied 97% of China’s corn import needs. In the first half of this year, it accounted for 3.8%.